Modvat credit and depreciation interplay requires proof that the double-benefit bar was actually satisfied before denial

Modvat credit on capital goods cannot be denied merely because depreciation was claimed in income-tax returns; the statutory bar applies only if the double-benefit restriction is actually satisfied. Revised returns, the amended definition of actual cost, and the assessee's accounting treatment are relevant to determine whether depreciation was in fact allowed or effectively subsisted. Where those materials were not properly examined, disallowance of credit and penalty cannot stand on that reasoning and the matter requires fresh consideration on the relevant evidence.

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Issues: Whether Modvat credit on capital goods could be denied merely because depreciation had been claimed in income-tax returns, and whether the revised returns and related income-tax material required reconsideration before disallowing the credit and penalty.

Analysis: The restriction in the excise rules was understood as preventing double benefit of Modvat credit and depreciation, not as authorising denial of credit in every case where depreciation had once been claimed. The corresponding income-tax provisions on actual cost and revised returns were relevant to determine whether depreciation had in fact been allowed or effectively neutralised. The authority had not examined the revised returns, the effect of the amended income-tax definition of actual cost, or the assessee's accounting treatment, and the matter therefore required fresh consideration on the relevant material.

Conclusion: The disallowance of Modvat credit and the penalty could not stand on the existing reasoning, and the matter had to be reconsidered in accordance with law.

Final Conclusion: The appellate order was set aside and the case was remitted for fresh decision after examining the relevant income-tax returns and supporting evidence.

Ratio Decidendi: Modvat credit on capital goods cannot be denied solely on the basis of a depreciation claim unless the statutory bar is satisfied on a proper examination of whether depreciation was actually allowed or effectively subsisted.

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